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**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 

**(Mark One)**

 

**x****     ****QUARTERLY REPORT PURSUANTTO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the quarterly period ended September 30, 2010**

 

**or**

 

**o****        ****TRANSITION REPORT PURSUANTTO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the transition periodfrom             to             **

 

**Commission File Number: 000-53209**

 

**Adelphia Recovery Trust**

(Exact name of registrant as specified inits charter)

 

| **Delaware**                                      | ** ** | **11-6615508**                       |
|---------------------------------------------------|------------|--------------------------------------|
| (State or other jurisdiction of  incorporation or |       | (I.R.S. Employer Identification No.) |
| organization)                                     |       |                                 |

 

**919 North Market Street, 17th Floor, PO Box 8705**

**Wilmington, Delaware 19899**

(Address of principal executive offices)(Zip Code)

 

**302-652-4100 Attn: DeanZiehl**

(Registrant’s telephone number, includingarea code)

 

 

(Former name, former address and formerfiscal year, if changed since last report)

 

Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.    x Yes No o

 

Indicate by check mark whether the registrant hassubmitted electronically and posted on its corporate website, if any, everyinteractive Data File required to be submitted and posted pursuant toRule 405 of Regulation S-T during the preceding 12 months (or for suchshorter period that the registrant was required to submit and post suchfiles).   o Yes No o

 

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, a non-accelerated filer, or asmaller reporting company. See the definitions of “large accelerated filer,” “acceleratedfiler” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

| Large accelerated filer o                      |   | Accelerated filer o         |
|------------------------------------------------|--------|-----------------------------|
|                                           |   |                        |
| Non-accelerated filer o                        |   | Smaller reporting company x |
| (Do not check if a smaller reporting  company) |   |                        |

 

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the ExchangeAct).    o Yes No x

 

APPLICABLEONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

 

Indicate by check mark whether the registrant hasfiled all documents and reports required to be filed by Sections 12, 13 or15(d) of the Securities Exchange Act of 1934 subsequent to thedistribution of securities under a plan confirmed by a court. o Yes No o

 

 

 

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ADELPHIARECOVERY TRUST

FORM 10-Q

INDEX

 
| PART I — FINANCIAL INFORMATION |                                                                                                |
|------------------------------------------|-----------------------------------------------------------------------------------------------------|
|                                     |                                                                                                |
|                                     | ITEM 1. FINANCIAL STATEMENTS (unaudited)                                                            |   |
|                                     |                                                                                                |   |
|                                     |                                                                                                | Unaudited Condensed Balance Sheets as of  September 30, 2010 and December 31, 2009 |   |
|                                     |                                                                                                |   |   |
|                                     |                                                                                                | Unaudited  Condensed Statements of Operations for the three and nine months ended  September 30, 2010 and 2009 |   |
|                                     |                                                                                                |   |   |
|                                     |                                                                                                | Unaudited  Condensed Statements of Cash Flows for the nine months ended  September 30, 2010 and 2009 |   |
|                                     |                                                                                                |   |   |
|                                     |                                                                                                | Notes to Condensed Financial Statements |   |
|                                     |                                                                                                |   |
|                                     | ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF  FINANCIAL CONDITION AND RESULTS OF OPERATIONS |   |
|                                     |                                                                                                |   |
|                                     | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT  MARKET RISK                                 |   |
|                                     |                                                                                                |   |
|                                     | ITEM 4. CONTROLS AND PROCEDURES                                                                     |   |
|                                     |                                                                                                |   |
| PART II                             |                                                                                                |
|                                     |                                                                                                |
|                                     | ITEM 1. LEGAL PROCEEDINGS                                                                           |   |
|                                     |                                                                                                |   |
|                                     | ITEM 1A. RISK FACTORS                                                                               |   |
|                                     |                                                                                                |   |
|                                     | ITEM 6. EXHIBITS                                                                                    |   |
|                                     |                                                                                                |   |
| SIGNATURES                               |                                                                                                |
|                                     |                                                                                                |
| CERTIFICATIONS                           |                                                                                                |

 

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**PART 1 - FINANCIAL INFORMATION**

 

Item 1   Financial Statements

 

**Adelphia Recovery Trust**

**Unaudited Condensed Balance Sheets**

 
| ** **                            | ** ** | **As of  September 30, 2010** | ** **  | **As of  December 31, 2009** | ** ** |
|---------------------------------------|------------|----------------------------------------------|-------------|---------------------------------------------|------------|
|                                  |       |                                         |        |                                        |       |
| **Assets**                            |       |                                         |        |                                        |       |
| Cash and cash  equivalents            |       | $                                            | 62,657,150  |                                        | $          | 164,327,745 |   |
| Temporary investments                 |       | 75,040,926                                   |        | —                                      |       |
| Prepaid assets                        |       | 212,936                                      |        | 611,363                                     |       |
| Note and accrued  interest receivable |       | 6,071,323                                    |        | 5,778,805                                   |       |
| Total assets                          |       | $                                            | 143,982,335 |                                        | $          | 170,717,913 |   |
|                                  |       |                                         |        |                                        |       |
| **Liabilities  and net assets**       |       |                                         |        |                                        |       |
| Accrued expenses                      |       | $                                            | 630,607     |                                        | $          | 3,311,521 |   |
| Total liabilities                     |       | 630,607                                      |        | 3,311,521                                   |       |
|                                  |       |                                         |        |                                        |       |
| Net assets                            |       | 143,351,728                                  |        | 167,406,392                                 |       |
|                                  |       |                                         |        |                                        |       |
| **Total  liabilities and net assets** |       | $                                            | 143,982,335 |                                        | $          | 170,717,913 |   |

 

Seeaccompanying notes to the condensed financial statements.

 

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**Adelphia Recovery Trust**

**Unaudited Condensed Statements of Operations**

 
| ** **                                   | ** ** | **For the three  months ended  September 30,  2010** | ** ** | **For the three  months ended  September 30,  2009** | ** ** | **For the nine  months ended  September 30,  2010** | ** ** | **For the nine********months ended  September 30,  2009** | ** **  |
|----------------------------------------------|------------|--------------------------------------------------------------------------|------------|--------------------------------------------------------------------------|------------|-------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------|-------------|
| Revenues                                     |       |                                                                     |       |                                                                     |       |                                                                    |       |                                                                          |        |
| Litigation - court  approvedsettlements      |       | $                                                                        | 0          |                                                                     | $          | 0                                                                       |       | $                                                                             | 0           |   | $ | 0 |   |
| Litigation — other  settlements         |       | 0                                                                        |       | 0                                                                        |       | 0                                                                       |       | 0                                                                             |        |
| Interest income                              |       | 165,150                                                                  |       | 153,123                                                                  |       | 475,027                                                                 |       | 681,289                                                                       |        |
| Total revenues                               |       | 165,150                                                                  |       | 153,123                                                                  |       | 475,027                                                                 |       | 681,289                                                                       |        |
|                                         |       |                                                                     |       |                                                                     |       |                                                                    |       |                                                                          |        |
| Operating expenses                           |       |                                                                     |       |                                                                     |       |                                                                    |       |                                                                          |        |
| General and administrative expenses          |       | 407,107                                                                  |       | 465,213                                                                  |       | 1,648,442                                                               |       | 1,675,010                                                                     |        |
| Professional expenses -litigation            |       | 7,372,630                                                                |       | 11,338,780                                                               |       | 22,355,306                                                              |       | 26,262,289                                                                    |        |
| Professional expenses —  administrative |       | 208,456                                                                  |       | 37,927                                                                   |       | 525,943                                                                 |       | 208,595                                                                       |        |
| Total operating  expenses                    |       | 7,988,193                                                                |       | 11,841,920                                                               |       | 24,529,691                                                              |       | 28,145,894                                                                    |        |
|                                         |       |                                                                     |       |                                                                     |       |                                                                    |       |                                                                          |        |
| Net loss                                     |       | $                                                                        | (7,823,043 | )                                                                        | $          | (11,668,797                                                             | )          | $                                                                             | (24,054,664 | ) | $ | (27,464,605 | ) |

 

Seeaccompanying notes to the condensed financial statements.

 

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**Adelphia Recovery Trust**

**Unaudited Condensed Statements of Cash Flows**

** **
| ** **                                              | ** ** | **For the  nine months  ended  September 30,  2010** | ** **  | **For the  nine months  ended  September 30,  2009** | ** ** |
|---------------------------------------------------------|------------|---------------------------------------------------------------------|-------------|---------------------------------------------------------------------|------------|
|                                                    |       |                                                                |        |                                                                |       |
| **Operating  activities**                               |       |                                                                |        |                                                                |       |
| Net loss                                                |       | $                                                                   | (24,054,664 | )                                                                   | $          | (27,464,605 | ) |
| Changes in operating  assets and liabilities:           |       |                                                                |        |                                                                |       |
| Prepaid assets                                          |       | 398,427                                                             |        | (386,786                                                            | )          |
| Note and accrued  interest receivable                   |       | (292,518                                                            | )           | (292,518                                                            | )          |
| Accrued expenses                                        |       | (2,680,914                                                          | )           | 4,456,936                                                           |       |
| Net cash used by  operating activities                  |       | (26,629,669                                                         | )           | (23,686,973                                                         | )          |
|                                                    |       |                                                                |        |                                                                |       |
| Investing activities                                    |       |                                                                |        |                                                                |       |
| Purchase of temporary  investments and accrued interest |       | (75,040,926                                                         | )           | —                                                              |       |
| Net cash used by  investing activities                  |       | (75,040,926                                                         | )           | —                                                              |       |
|                                                    |       |                                                                |        |                                                                |       |
| **Net  change in cash and cash equivalents**            |       | (101,670,595                                                        | )           | (23,686,973                                                         | )          |
| **Cash  and cash equivalents, beginning of period**     |       | 164,327,745                                                         |        | 161,057,351                                                         |       |
| **Cash  and cash equivalents, end of period**           |       | $                                                                   | 62,657,150  |                                                                | $          | 137,370,378 |   |

 

Seeaccompanying notes to the condensed financial statements.

 

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ADELPHIARECOVERY TRUST

 

Notesto the Condensed Financial Statements — September 30, 2010 (Unaudited)

 

1                                          Background

 

The Adelphia RecoveryTrust (the “ART”) was formed as a Delaware statutory trust pursuant tothat certain First Modified Fifth Amended Joint Chapter 11 Plan ofReorganization (the “Plan”) of Adelphia Communications Corporation (“Adelphia”or “ACC” ) and certain of its subsidiaries (collectively the “Debtor”).The purpose of the ART is to prosecute the various causes of action transferredto the ART pursuant to the Plan (the “Causes of Action”) and distributeto the owners (the “Holders”) of the interests in the ART (“Interests”)the net proceeds of such Causes of Action (“Distributions”), accordingto the relative priorities established pursuant to the Plan, subject to theretention of various amounts to fund the prosecution of those Causes of Actionand operations of the ART. Pursuant to the Plan, in addition to the Causes ofAction, Adelphia transferred $25 million in cash to the ART, in connection withits formation, in order to fund the initial expenses of operation.

 

As set forth in the Plan,the ART is administered by five trustees (the “Trustees”) who areresponsible for carrying out the purposes of the ART. Quest TurnaroundAdvisors, L.L.C. (“Quest”) is the plan administrator (in such capacity,the “Plan Administrator”) of Adelphia. Quest and Adelphia together haveagreed to provide certain administrative services to the ART. In order tofacilitate the provision of such administrative services, the ART has appointedQuest as the trust administrator of the ART (in such capacity, the “TrustAdministrator”).

 

2                                          Basis of Presentation

 

The accompanying interimunaudited condensed financial statements of the ART have been prepared inaccordance with generally accepted accounting principles in the United Statesof America for interim periods (“US GAAP”) and with the instructions toForm 10-Q.  As such, they do not include all of the information anddisclosures required by US GAAP for complete financial statements.  In theopinion of the Trustees, all adjustments (consisting of normal recurringaccruals) considered necessary for a fair presentation of the interim unauditedcondensed financial statements have been included.  These condensedfinancial statements should be read in conjunction with the ART’s auditedfinancial statements for the year ended December 31, 2009 included in itsForm 10-K filed with the Securities and Exchange Commission (“SEC”)on March 10, 2010. Interim results are not necessarily indicative of theresults for the complete fiscal year. The unaudited condensed balance sheet asof December 31, 2009 was derived from the audited financial statements forthe year then ended.

 

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3                                          Related Party Transactions

 

The Trust Administratorand Adelphia continue to provide administrative support to the ART includingmaintaining electronic data and paper documents used in prosecuting the Causesof Action, financial reporting and support for Distributions when they mightoccur (including maintenance of data related to the implementation of Planprovisions). These services have and will continue to be provided at no cost tothe ART under the terms of various agreements between the Trust Administratorand Adelphia. The ART financial statements do not reflect any amounts for theseservices.

 

4                                          Causes of Action and Contingencies

 

Except as set forth below, there have beenno material developments in the legal proceedings described in the ART’sForm 10-K as filed on March 10, 2010 or as updated in the ART’s Form 10-Qsfiled on May 7, 2010 and August 9, 2010.

 

Bank Litigation

 

On September 22,2010, the ART announced that it had reached an agreement in principle to settleits claims against all but one Defendant in exchange for a payment of $175million.  The settlement agreement was executed and effective as of October 25,2010. The ART filed a motion to approve the settlement, which is scheduled tobe heard by United States District Court Judge Lawrence M. McKenna on November 18,2010.  If the settlement is approved, it will resolve all claims pendingin the Bank Litigation, except the ART’s fraudulent conveyance claims againstGoldman Sachs arising from Adelphia Communications Corporation’s pre-petitionrepayment of the Rigases’ personal margin loans. As to the claim againstGoldman Sachs, Goldman Sachs’ motion for summary judgment is pending before theCourt and is awaiting decision. The settlement also will resolve the ART’spetition for writ of *certiorari*filed on October 22, 2010, which seeks review of the Second Circuit’s May 26,2010 order affirming the District Court’s dismissal of certain of the ART’sbankruptcy claims.

 

Pursuant to the ART’srevenue recognition policy, the ART will not record settlement related revenuesor expenses for this matter until the settlement has received court approval.At this time, the ART cannot predict the outcome of these proceedings.

 

Sabres Litigation

 

As part of the Bank Litigation settlement,the ART agreed to resolve its claims against Fleet Bank, N.A. in the *Sabres* Litigation, but not the Trust’sclaims against Key Bank, N.A. or HSBC Bank USA, N.A.  If the settlement ofthe Bank Litigation is approved by the District Court, the ART will seek thedismissal of its claims against Fleet Bank N.A.

 

At this time, the ART cannot predict theoutcome of these proceedings or estimate the possible financial effect of theseproceedings on the ART’s financial statements.

 

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FPL Litigation

 

On June 24, 2004, the UnsecuredCreditors’ Committee filed a fraudulent conveyance complaint against FPL Group, Inc.and West Boca Security, Inc. (“FPL”) in the Bankruptcy Court for theSouthern District of New York relating to pre-petition transactions.

 

The FPL action seeks to recover an allegedfraudulent transfer arising out of Adelphia’s repurchase of certain of itsstock from FPL in January 1999 for $149.5 million.  Under the current scheduling order, factdiscovery is to be completed by May 12, 2011, expert discovery is to becompleted by June 30, 2011, and trial is set to begin on September 16,2011.

 

At this time, the ARTcannot predict the outcome of these proceedings or estimate the possiblefinancial effect of these proceedings on the ART’s financial statements.

 

Litigation Indemnification Fund Dispute

 

Pursuant to the Third Modified FourthAmended Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Codefor Century-TCI Debtors and Parnassos Debtors (the “JV Plan”), which becameeffective on July 31, 2006; the First Modified Fifth Amended Joint Chapter11 Plan for Adelphia Communications Corporation and Certain of Its AffiliatedDebtors (the “Main Plan”), which became effective on February 13, 2007;and certain other orders entered by the Bankruptcy Court, litigationindemnification funds (each, a “LIF”) were created to provide certaindefendants in the Bank Litigation (see above) provisional and conditionalreimbursement of legal fees and expenses expected to be incurred in connectionwith defending litigation involving certain credit facilities.

 

The LIF created under the JV Plan (the “JVLIF”), established in the initial amount of $10 million, was created to fundcertain allowable claims for indemnification arising under the Parnassos andCentury-TCI prepetition credit facilities.  Subject to certain conditions,the JV LIF is “evergreen”; in other words, the JV Plan provides the JV LIFwill be replenished by the ART under certain conditions, such as “upon thereceipt . . . of net proceeds of any Designated Litigation” after firstdeducting any required distribution to the government.

 

The LIFs created under the Main Plan (the “MainPlan LIFs”) are fixed in amounts and not subject to replenishment. Because the JV LIF is evergreen, whereas the Main Plan LIFs are capped, theallocation of defense costs among the categories of LIFs is a matterof economic significance.

 

Century-TCI and Parnassos lenders (the “JVLenders”) to date have submitted formal claims of approximately $25 million inaggregate (“JV LIF Claims”) in excess of the $10 million initially deposited inthe JV Litigation Indemnification Fund (the “JV LIF”) and have indicated anintention to submit additional claims in the future.  Adelphia and the ARThave asserted that certain defendants in the Bank Litigation are not entitledto reimbursement from the JV LIF on the basis, among others, that the JV LIFclaims are improper.  On November 13, 2008, certain of those claimantsfiled, or subsequently joined in, the *Motionof the Bank of Nova Scotia, Citibank N.A. and The Ad Hoc Committee of Non-AgentSecured Lenders in the Parnassos and Century-TCI*

 

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*Facilities for Payment of BankLender Post Effective Date Fee Claims and to Compel Compliance of the PlanAdministrator (defined in the JV Plan as Adelphia) and the Art with the ThirdModified Fourth Amended Joint Plan of Reorganization Under Chapter 11 of theBankruptcy Code and the Century TCI Stipulation*(the “LIF Motion”).  Adelphia and the ART moved to disallow Bank LenderPost-Effective Date Fee Claims against the claimants. The Bankruptcy Court hasscheduled an evidentiary hearing on the Motion for December 13, 2010.

 

If the Bankruptcy Court grants the LIFMotion, the JV LIF may need to be replenished in an amount thatsatisfies all claims that have been submitted and returns the balance in the JVLIF to $10 million..  In addition, the Bankruptcy Court coulddetermine that the JV LIF must be replenished by the amount of the disputed JVLIF Claims while the dispute is still pending.

 

At this time, the ART cannot predict theoutcome of these proceedings or estimate the possible financial effect of theseproceedings on the ART.

 

5                                          Fair Value of Financial Instruments 

 

As of September 30,2010, the ART had temporary investments in FDIC insured six-month bankcertificates of deposit (“CDs”) which had a carrying value of$75,040,926. The carrying value represents the original investment of $75.0million, plus accrued interest of $40,926 through September 30, 2010. Thecarrying value approximates the fair value for these temporary investments asof September 30, 2010. The six-month CDs will mature on various dates inthe fourth quarter of 2010 and the first quarter of 2011.

 

The fair value of thenote receivable and accrued interest has been determined using unobservableinputs (i.e. Level 3, as defined in Accounting Standards Codification 820-10)and approximates $4.6 million as of September 30, 2010 and $4.4 million asof December 31, 2009. The fair value was derived by discounting to September 30,2010 and December 31, 2009 the projected maturity value of the noteincluding accrued interest. The projected maturity values, including interest,were calculated using life expectancy tables. The discount rate is based on theyield on the notes issued by the life insurance companies underwriting the lifeinsurance policies and various risk factors associated with the note.

 

The carrying values wereapproximately $6.1 million as of September 30, 2010 and approximately $5.8million as of December 31, 2009. The note bears 8% simple interest and isrecourse only to the proceeds of various life insurance policies on Mr. andMrs. Leonard Tow totaling approximately $28 million.

 

6                                          Subsequent Events

 

Events subsequent to September 30,2010 have been evaluated through November 12, 2010, the date theaccompanying financial statements were issued. Other than as discussed herein,there have been no subsequent events that would be material to the financialstatements of the ART, including Cause of Action settlements or judgments orDistributions. The Trustees expect to make a determination regarding aDistribution following court approval of the Bank Litigation settlement butwill retain enough cash in reserve to administer the ART and fund theprosecution of the Causes of Action.

 

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| Item 2 | **Management Discussion and Analysis** |
|--------|----------------------------------------|

 

Overview

 

The Adelphia RecoveryTrust was formed as a Delaware statutory trust pursuant to that certain FirstModified Fifth Amended Joint Chapter 11 Plan of Reorganization of Adelphia andcertain of its subsidiaries. The purpose of the ART is to prosecute the variousCauses of Action transferred to the ART pursuant to the Plan and distribute tothe owners of the Interests in the ART the net proceeds of such Causes ofAction, according to the relative priorities established pursuant to the Plan,subject to the retention of various amounts to fund the prosecution of thoseCauses of Action and operations of the ART. Pursuant to the Plan, in additionto the Causes of Action, Adelphia transferred $25 million in cash to the ART inconnection with its formation in order to fund the initial expenses ofoperation.

 

Adelphia and certain ofits subsidiaries filed for Chapter 11 bankruptcy protection in June 2002.During the bankruptcy, on July 31, 2006 the assets of Adelphia were soldfor a combination of cash and stock in Time Warner Cable, Inc. (“TWC”).In late 2006, representatives of various groups of creditors reached agreementon the allocation and distribution of the cash, TWC stock, other proceeds fromthe sale of estate assets and relative priorities to any Distributions arisingfrom the Causes of Action contributed to the ART. This agreement was embodiedin the Plan, which was confirmed in January 2007 and became effective onFebruary 13, 2007 (the “Effective Date”). Under the Plan, thecreditors and equity holders of Adelphia and certain of its subsidiariesreceived one or more of the following: cash, TWC stock, rights to futureDistributions up to payment in full and the Interests.

 

The ART will dissolveupon the earlier of the resolution of all Causes of Action and the distributionof all of its assets to the Holders or the fifth anniversary of its creation.However, the Bankruptcy Court may approve an extension of the term if deemednecessary for the purposes of resolving the Causes of Action and distributingthe net proceeds to Holders.

 

As set forth in the Planand the Declaration of Trust for the ART, as amended (the “Declaration”),the ART is administered by five Trustees. These Trustees are authorized tocarry out the purposes of the ART. In particular, the Trustees are responsiblefor protecting, maintaining, liquidating to cash and maximizing the value ofthe Causes of Action contributed to the ART, whether by litigation, settlementor otherwise.

 

Distributions

 

Pursuant to the Plan andthe Declaration, Distributions to Holders are net of any costs and expensesincurred by the ART in connection with administering, litigating or otherwiseresolving the various Causes of Action. Such costs and expenses may alsoinclude fees and expenses of the Trustees, premiums for directors and officersinsurance, and other insurance and fees and expenses of attorneys andconsultants. Distributions will be made only from assets of the ART and only tothe extent that the ART has sufficient assets (over amounts retained forcontingent liabilities and future costs and expenses, among other things) tomake such payments in accordance with the Plan and the Declaration. NoDistribution is required to be made to any Holder unless such Holder is toreceive in such Distribution at 

 

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least $25.00 or unless such Distribution is thefinal Distribution to such Holder pursuant to the Plan and the Declaration.

 

Distributions will bemade at the sole discretion of the Trustees in accordance with the provisionsof the Plan and the Declaration. The Trustees expect to make a determinationregarding a Distribution following court approval of the Bank Litigationsettlement but will retain enough cash in reserve to administer the ART andfund the prosecution of the Causes of Action.

 

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As of September 30,2010, the number of Interests outstanding in each series eligible to receive aDistribution is as follows:

 
| **CVV Series of Interest:** | ** ** | **As of ****September 30****, 2010** | ** ** |
|--------------------------------------------|------------|----------------------------------------------------------|------------|
| Series RF                             |       | 115,000,000                                              |       |
| Series Arahova                        |       | 722,639,681                                              |       |
| Series FrontierVision                 |       | 86,600,001                                               |       |
| Series FPL                            |       | 25,575,129                                               |       |
| Series Olympus                        |       | 17,000,001                                               |       |
| Series ACC-1                          |       | 4,839,988,165                                            |       |
| Series ACC-2                          |       | 339,207,075                                              |       |
| Series ACC-3                          |       | 119,430,302                                              |       |
| Series ESL (1)                        |       | 17                                                       |       |
| Series ACC-4                          |       | 1,790,968,272                                            |       |
| Series ACC-5 (1)                      |       | 458                                                      |       |
| Series ACC-6B                         |       | 150,000,000                                              |       |
| Series ACC-6B1 (1)                    |       | 3                                                        |       |
| Series ACC-6D                         |       | 575,000,000                                              |       |
| Series ACC-6D1 (1)                    |       | 229,004                                                  |       |
| Series ACC-6E/F                       |       | 935,812,456                                              |       |
| Series ACC-6E/F1  (1)                 |       | 277,210                                                  |       |
| Series ACC-7                          |       | 217,022,640                                              |       |
| Series ACC-7A (1)                     |       | 1,537,766,752                                            |       |

 

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(1) For each of these categories of Interests(which include disputed claims), each holder of a disputed claim was awardedone Interest. The number of Interests is expected to change based on the resolutionof disputed claims.

 

**Resultsof Operations**

 

The ART operates pursuantto the Plan and the Declaration. The ART was formed as a Delaware statutorytrust to prosecute various claims originally owned by Adelphia and, if any ofthe prosecutions are successful or are settled in a manner which provideseconomic benefit to the ART, to distribute excess proceeds over amountsretained to fund the prosecution of the Causes of Action and operations of theART, to the Holders. The Trustees expect to make a determination regarding aDistribution following court approval of the Bank Litigation settlement butwill retain enough cash in reserve to administer the ART and fund theprosecution of the Causes of Action.

 

*Third Quarter 2010 vs Third Quarter 2009*

 

Total revenues consistingsolely of interest increased to approximately $165,000 in the third quarter of2010 from approximately $153,000 in the third quarter of 2009. The increase ofapproximately $12,000 was caused by an increase in investment yields offset bylower average cash balances in the third quarter of 2010 compared to the thirdquarter of 2009. The Trust adjusted its investment strategy in the firstquarter of 2010 to nominally improve

 

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yields as more fully described below under “FinancialCondition and Cash Flows”. There were no court approved settlements or relatedrevenues for either the third quarter of 2010 or for the third quarter of 2009.

 

Total operating expensesfor the ART decreased to approximately $8.0 million in the third quarter of2010 from approximately $11.8 million in the third quarter of 2009. Thedecrease of approximately $3.8 million was caused by decreased costs associatedwith professional litigation and general and administrative costs offset by anincrease in professional administrative costs in the third quarter of 2010versus the third quarter of 2009.

 

Professional litigationcosts decreased by approximately $4.0 million in the third quarter of 2010compared to the third quarter of 2009 due to decreased professional expensesrelated to the Bank and Prestige Causes of Action.

 

General andadministrative costs decreased by approximately $58,000 in the third quarter of2010 when compared to the third quarter of 2009. The ART experienced decreasedcosts of approximately $62,000 in the third quarter of 2010 for the ART tax andSEC filings (“Regulatory Costs”) and insurance costs but had offsettingincreased costs of approximately $4,000 for Trustee expenses and othermiscellaneous items between the same comparable periods.

 

Professionaladministrative costs increased approximately $171,000 in the third quarter of2010 compared to the third quarter of 2009. The increased costs in the thirdquarter of 2010 relate primarily to increased legal support costs incurred bythe ART to manage trust operations, administrative requirements, for Cause ofAction coordination and for regulatory compliance.

 

As a result of theincrease in total revenues of approximately $12,000 and the decrease in totaloperating expenses of approximately $3.8 million in the third quarter of 2010compared to the third quarter of 2009, the net loss of approximately $7.8million for the quarter ended September 30, 2010 was approximately $3.8million lower than the net loss for the quarter ended September 30, 2009.

 

*Nine months ended September30,2010 versus the nine months ended September 30, 2009*

 

Total revenues consistingsolely of interest decreased to approximately $475,000 for the nine monthsended September 30, 2010 from approximately $681,000 for the nine monthsended September 30, 2009. The decrease of approximately $206,000 wascaused by a reduction in investment yields during the nine months ended September 30,2010 compared to the nine month period ended September 30, 2009 offset bya higher average cash balance in the nine months period ended September 30,2010 compared to the nine month period ended September 30, 2009. The Trustadjusted its investment strategy in the first quarter of 2010 to improve yieldsas more fully described below under “Financial Condition and Cash Flows”. Therewere no court approved settlements or related revenues for the nine monthsended September  30, 2010 or for the nine months ended September 30,2009.

 

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Total operating expensesfor the ART decreased to approximately $24.5 million for the nine months ended September 30,2010 compared to $28.1 million for the nine months ended September 30,2009. The decrease of approximately $3.6 million was caused by decreasedprofessional litigation and general and administrative costs offset byincreased professional administrative costs between the same comparableperiods.

 

Professional litigationcosts decreased approximately $3.9 million for the nine months ended September 30,2010 when compared to the nine months ended September 30, 2009. There weredecreased costs for the Bank Cause of Action totaling approximately $3.6 millionand for the Prestige Cause of Action totaling approximately $0.3 million. Thechanges in costs were caused by reduced activity levels related to the Causesof Action.

 

General andadministrative costs decreased approximately $27,000 for the nine months ended September 30,2010 when compared to the nine months ended September 30, 2009. The ARTexperienced decreased costs of approximately $102,000 for the nine months endedSeptember 30, 2010 for ART Regulatory Costs and approximately $36,000 forinsurance costs. This was offset by increased bank fees of approximately $4,000and Trustee additional service compensation and expenses of approximately$107,000 between the same timeframes.

 

Professionaladministrative costs increased approximately $317,000 for the nine months endedSeptember 30, 2010 compared to the nine months ended September 30,2009. The increased costs relate primarily to increased legal support costsincurred by the ART to manage trust operations, administrative requirements,for Cause of Action coordination and for regulatory compliance.

 

As a result of thedecrease in total revenues of approximately $206,000 and the decrease in totaloperating expenses of approximately $3.6 million for the nine months ended September 30,2010 compared to the nine months ended September 30, 2009, the net loss ofapproximately $24.1 million for the nine months ended September 30, 2010was approximately $3.4 million lower than the net loss for the nine monthsended September 30, 2009.

 

**FinancialCondition and Cash Flows: Liquidity**

 

The ART’s sources ofliquidity are from (a) the $25 million transferred to the ART by Adelphiapursuant to the Plan on the Effective Date, (b) the successful resolutionof Causes of Action and (c) earnings on invested cash balances. Receiptsfrom these sources are used to pay professional and operating expenses of theART and to fund Distributions to the Holders after reserving cash required topay future professional and operating expenses of the ART. The Trusteesregularly evaluate the future financial needs of the ART. The Trustees expectto make a determination regarding a Distribution following court approval ofthe Bank Litigation settlement but will retain enough cash in reserve toadminister the ART and fund the prosecution of the Causes of Action.

 

Based upon cash and cashequivalent balances as of September 30, 2010 totaling approximately $62.7million and temporary investments totaling approximately $75.0 million 

 

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along with expected expenses and other potentialdisbursements, the ART expects to meet its obligations as they come due duringthe next twelve months. Due to the uncertain nature of future revenues andexpenses beyond twelve months, it is not possible to be certain that cash willbe available to cover all the future financial needs of the ART. Incurringdebt, creating contingent obligation agreements and seeking methods toreduce legal professional and administrative costs are all strategies thatcould be undertaken to address liquidity issues should they arise. Thesestrategies could impact the ART’s ability to maximize recoveries fromsettlements.

 

The nature of the ART’soperations does not give rise to capital expenditures and there are no currentor expected commitments for capital expenditures in the next twelve months.Should a need for capital expenditures arise, the ART would fund therequirement from existing assets. Additionally, the ART currently has nolong-term contracts or other long-term obligations.

 

Cash and cash equivalentbalances at September 30, 2010 of approximately $62.7 million are $101.7million lower than as of December 31, 2009. This reduction is due to a useof cash and cash equivalents for operating activities of $26.6 million and forinvesting activities of $75.0 million to purchase CDs with six-month maturity dates.Such CDs are classified as temporary investments. The $26.6 million use of cashfor operating activities included a net loss for the nine months ended September 30,2010 of approximately $24.1 million and a decrease in accrued expenses ofapproximately $2.7 million. The decrease in accrued expenses is due to thetiming of vendor payments. Operating activities include the accrual of intereston a note receivable during the nine months ended September 30, 2010 ofapproximately $0.3 million and the amortization of prepaid assets ofapproximately $0.4 million. Investing activities during the nine months ended September 30,2010 included the investment of $75.0 million of available cash and cashequivalents into CDs with a six-month maturity when purchased. These CDs have acarrying value at September 30, 2010 that includes accrued interest of$40,926.

 

Asof September 30, 2010, the ART has moved a total of $124.0 million of cash and cashequivalents consisting of U.S. Treasury and government agency securities moneymarket fund to three-month and six-month FDIC fully-insured bank CDs in orderto improve the yields on invested cash. The $124.0 million of CDs is comprisedof $75.0 million of six-month CDs classified as temporary investments and $49.0million of three-month CDs that remain classified as cash and cash equivalents.The total of $62.7 million in cash and cash equivalents at September 30, 2010 includes the $49.0 million of3-month CDs and $13.7 million of other investments and accrued interest. TheART considers all highly liquid investments purchased with a maturity of threemonths or less to be cash equivalents. As such, the three-month CDs have beenclassified as cash equivalents and the six-month CDs are classified astemporary investments. All investmentsduring the quarter were fully compliant with the ART investment policy.

 

As discussed further in Note 4 to the unauditedConsolidated Financial Statements, there is an ongoing dispute regarding theLitigation Indemnification Fund created under the Third Modified Fourth AmendedJoint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code forCentury-TCI Debtors and Parnassos Debtors. To date, Century-TCI and Parnassos lenders (the “JV Lenders”) havesubmitted formal claims of approximately $25 million in aggregate (“JV LIFClaims”) in excess of the $10 million initially deposited in the JV LIF andhave indicated an intention to submit additional claims in the future. If theBankruptcy Court finds in favor of the JV Lenders in that dispute, the ART maybe required to replenish the JV LIF in an amount that satisfies all pendingclaims and returns the balance in the fund to $10 million.  In addition, the Bankruptcy Court coulddetermine that the JV LIF must be replenished by the amount of the disputed JVLIF Claims while the dispute is still pending. The ART has adequate liquidityto pay such obligation, if required.

 

**Debt and Other Long-term Obligations**

 

The ART has no debt,capital or operating lease or other long-term obligations and has no currentplans to incur such obligations.

 

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**Cautionary StatementRegarding Risks and Uncertainties That May Affect Future Results**

 

This report onForm 10-Q contains forward-looking statements about the business,financial condition and prospects of the ART. The actual results of the ARTcould differ materially from those indicated by the forward-looking statementsbecause of various risks and uncertainties, including, without limitation, thenumber of and proceeds from litigations and/or settlements which aresuccessful, delays in obtaining proceeds, the amount of funding required forthe litigations and other operating expenses, economic conditions, changes intax and other governmental rules and regulations applicable to the ART,and other risks identified and described in the Form 10-K filed with theSEC on March 10, 2010. These risks and uncertainties are beyond theability of the ART to control, and in many cases, the ART cannot predict therisks and uncertainties that could cause its actual results to differmaterially from those indicated by the forward-looking statements. When used inthis report the words “believes,” “estimates,” “plans,” “expects,” and “anticipates”and similar expressions as they relate to the ART or its management areintended to identify forward-looking statements.

 
| Item 3 | **Quantitative and Qualitative Disclosures about  Market Risk** |
|--------|-----------------------------------------------------------------|

 

The ART invests cash andcash equivalents in either FDIC insured deposit accounts, FDIC insured bank CDsor a money market fund invested in short-term U.S. Treasury and governmentagency securities including repurchase agreements collateralized fully by U.S.Treasury and government agency securities. The CDs have 3 or 6 month maturityterms and as of September 30, 2010 the money market fund has a 32 dayeffective maturity for the underlying securities. Interest income from theseinvestments is subject to interest rate fluctuations.

 
| Item 4 | **Controls and Procedures** |
|--------|-----------------------------|

 

*Evaluation of Disclosure Controls and Procedures*

 

The ART maintainsdisclosure controls and procedures that are designed to ensure that informationrequired to be disclosed in its reports filed under the Exchange Act isrecorded, processed, summarized and reported within the time periods specifiedin the SEC’s rules and forms. Disclosure controls and procedures includecontrols and procedures designed to ensure that such information is accumulatedand communicated to ART Trustees and the Trust Administrator as appropriate, toallow timely decisions regarding required financial disclosure.

 

The Trustees and theTrust Administrator have completed an evaluation of the effectiveness of thedesign and operation of disclosure controls and procedures as of September 30,2010. Based on their evaluation, the Trustees and the Trust Administrator

 

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concluded that as of September 30, 2010, theART’s disclosure controls and procedures were effective.

 

*Limitations on the Effectiveness of Controls*

 

The Trustees and theTrust Administrator do not expect that the ART’s disclosure controls willprevent or detect all errors and all fraud. A control system, no matter howwell designed and operated, can provide only reasonable, not absolute,assurance that the control system’s objectives will be met. Further, the designof a control system must reflect the fact that there are resource constraints,and the benefits of controls must be considered relative to their costs.Because of the inherent limitations in all control systems, no evaluation ofcontrols can provide absolute assurance that all control issues and instancesof fraud, if any, within the ART have been detected. These inherent limitationsinclude the realities that judgments in decision-making can be faulty, and thatbreakdowns can occur because of simple error or mistake. Controls can also becircumvented by the individual acts of some persons, by collusion of two ormore people, or by management override of the controls. The design of anysystem of controls is based in part upon certain assumptions about the likelihoodof future events, and there can be no assurance that any design will succeed inachieving its stated goals under all potential future conditions. Over time,controls may become inadequate because of changes in conditions ordeterioration in the degree of compliance with associated policies orprocedures. Because of the inherent limitations in a cost-effective controlsystem, misstatements due to error or fraud may occur and not be detected.

 

*Changes in Internal Control over Financial Reporting*

 

During the quarter ended September 30,2010, there were no changes in the ART’s internal control over financialreporting that have materially affected, or are reasonably likely to materiallyaffect, the ART’s internal control over financial reporting.

 

**PART II**

 
| Item **1** | **Legal Proceedings** |
|------------|-----------------------|

 

Except as set forth below, there have beenno material developments in the legal proceedings described in the ART’sForm 10-K as filed on March 10, 2010 or as updated in the ART’s Form 10-Qsfiled on May 7, 2010 and August 9, 2010.

 

Bank Litigation

 

On September 22,2010, the ART announced that it had reached an agreement in principle to settleits claims against all but one Defendant in exchange for a payment of $175million.  The settlement agreement was executed and effective as of October 25,2010. The ART filed a motion to approve the settlement, which is scheduled tobe heard by United States District Court Judge Lawrence M. McKenna on November 18,2010.  If the settlement is approved,

 

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it will resolve all claims pending in the BankLitigation, except the ART’s fraudulent conveyance claims against Goldman Sachsarising from Adelphia Communications Corporation’s pre-petition repayment ofthe Rigases’ personal margin loans. As to the claim against Goldman Sachs,Goldman Sachs’ motion for summary judgment is pending before the Court and isawaiting decision. The settlement also will resolve the ART’s petition for writof *certiorari* filed on October 22,2010, which seeks review of the Second Circuit’s May 26, 2010 orderaffirming the District Court’s dismissal of certain of the ART’s bankruptcyclaims.

 

Pursuant to the ART’srevenue recognition policy, the ART will not record settlement related revenuesor expenses for this matter until the settlement has received court approval.At this time, the ART cannot predict the outcome of these proceedings.

 

Sabres Litigation

 

As part of the Bank Litigation settlement,the ART agreed to resolve its claims against Fleet Bank, N.A. in the *Sabres* Litigation, but not the Trust’sclaims against Key Bank, N.A. or HSBC Bank USA, N.A.  If the settlement ofthe Bank Litigation is approved by the District Court, the ART will seek thedismissal of its claims against Fleet Bank N.A.

 

At this time, the ART cannot predict theoutcome of these proceedings or estimate the possible financial effect of theseproceedings on the ART’s financial statements.

 

FPL Litigation

 

On June 24, 2004, the UnsecuredCreditors’ Committee filed a fraudulent conveyance complaint against FPL Group, Inc.and West Boca Security, Inc. (“FPL”) in the Bankruptcy Court for theSouthern District of New York relating to pre-petition transactions.

 

The FPL action seeks to recover an allegedfraudulent transfer arising out of Adelphia’s repurchase of certain of itsstock from FPL in January 1999 for $149.5 million.  Under the current scheduling order, factdiscovery is to be completed by May 12, 2011, expert discovery is to becompleted by June 30, 2011, and trial is set to begin on September 16,2011.

 

At this time, the ARTcannot predict the outcome of these proceedings or estimate the possiblefinancial effect of these proceedings on the ART’s financial statements.

 

Litigation Indemnification Fund Dispute

 

Pursuant to the Third Modified FourthAmended Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Codefor Century-TCI Debtors and Parnassos Debtors (the “JV Plan”), which becameeffective on July 31, 2006; the First Modified Fifth Amended Joint Chapter11 Plan for Adelphia Communications Corporation and Certain of Its

 

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Affiliated Debtors (the “Main Plan”), which becameeffective on February 13, 2007; and certain other orders entered by theBankruptcy Court, litigation indemnification funds (each, a “LIF”) were createdto provide certain defendants in the Bank Litigation (see above)provisional and conditional reimbursement of legal fees and expenses expectedto be incurred in connection with defending litigation involving certaincredit facilities.

 

The LIF created under the JV Plan (the “JVLIF”), established in the initial amount of $10 million, was created to fundcertain allowable claims for indemnification arising under the Parnassos andCentury-TCI prepetition credit facilities.  Subject to certain conditions,the JV LIF is “evergreen”; in other words, the JV Plan provides the JV LIFwill be replenished by the ART under certain conditions, such as “upon thereceipt . . . of net proceeds of any Designated Litigation” after firstdeducting any required distribution to the government.

 

The LIFs created under the Main Plan (the “MainPlan LIFs”) are fixed in amounts and not subject to replenishment. Because the JV LIF is evergreen, whereas the Main Plan LIFs are capped, theallocation of defense costs among the categories of LIFs is a matterof economic significance.

 

Century-TCI and Parnassos lenders (the “JVLenders”) to date have submitted formal claims of approximately $25 million inaggregate (“JV LIF Claims”) in excess of the $10 million initiallydeposited in the JV Litigation Indemnification Fund (the “JV LIF”) and haveindicated an intention to submit additional claims in the future. Adelphia and the ART have asserted that certain defendants in the BankLitigation are not entitled to reimbursement from the JV LIF on the basis,among others, that the JV LIF claims are improper.  On November 13,2008, certain of those claimants filed, or subsequently joined in, the *Motion of the Bank of Nova Scotia, Citibank N.A. andThe Ad Hoc Committee of Non-Agent Secured Lenders in the Parnassos andCentury-TCI Facilities for Payment of Bank Lender Post Effective Date FeeClaims and to Compel Compliance of the Plan Administrator (defined in the JVPlan as Adelphia) and the Art with the Third Modified Fourth Amended Joint Planof Reorganization Under Chapter 11 of the Bankruptcy Code and the Century TCIStipulation* (the “LIF Motion”).  Adelphia and the ART moved todisallow Bank Lender Post-Effective Date Fee Claims against the claimants. TheBankruptcy Court has scheduled an evidentiary hearing on the Motion for December 13,2010.

 

If the Bankruptcy Court grants the LIFMotion, the JV LIF may need to be replenished in an amount thatsatisfies all claims that have been submitted and returns the balance in the JVLIF to $10 million.  In addition, the Bankruptcy Court could determinethat the JV LIF must be replenished by the amount of the disputed JV LIF Claimswhile the dispute is still pending.

 

At this time, the ART cannot predict theoutcome of these proceedings or estimate the possible financial effect of theseproceedings on the ART.

 

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| Item 1A**.** | **Risk Factors** |
|--------------|------------------|

 

As of the date of thisfiling there have been no material changes from the risk factors previouslydisclosed in our “Risk Factors” in the ART’s Form 10-K for the year endedDecember 31, 2009 as filed with the SEC on March 10, 2010.

 
| Item 6 | **Exhibits** |
|--------|--------------|
|   | ** **   |
|   | 2.1*         |   | First Modified Fifth Amended Joint Chapter 11  Plan of Reorganization of Adelphia Communications Corporation and Certain of  its Affiliated Debtors, effective February 13, 2007 |
|   |         |   |   |
|   | 3.1*         |   | Restated Certificate of Trust, dated  February 13, 2007 |
|   |         |   |   |
|   | 3.2*         |   | Amendment to Restated Certificate of Trust, dated  March 15, 2007 |
|   |         |   |   |
|   | 3.3*         |   | Second Amended and Restated Declaration of Trust,  dated June 4, 2008 |
|   |         |   |   |
|   | 3.4*         |   | Rules and Procedures of Adelphia Recovery  Trust |
|   |         |   |   |
|   | 4.1*         |   | Form of Certificate Evidencing Undivided  Beneficial Interests in the Assets of the Adelphia Recovery Trust (Global  Certificate) |
|   |         |   |   |
|   | 4.2*         |   | Form of Certificate Evidencing Undivided  Beneficial Interests in the Assets of the Adelphia Recovery Trust (Book Entry  Certificate) |
|   |         |   |   |
|   | 10.1*        |   | Plan Administrator Agreement, dated  February 12, 2007 |
|   |         |   |   |
|   | 10.2*        |   | Trustee Compensation Agreement |

 

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*Incorporated by reference to the Form 10 ofAdelphia Recovery Trust (File No. 000-53209) filed April 30, 2008 andthe amended Form 10 filed July 2, 2008.

 
| 31.1 | Section 302 Certification of Trustee                                                                                                                   |
|------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.2 | Section 302 Certification of Trust  Administrator                                                                                                      |
| 32.1 | Certification of Trustee pursuant to 18 U.S.C.  1350 Section 1350, as adopted pursuant to Section 906 of the  Sarbanes Oxley Act of 2002          |
| 32.2 | Certification Trust Administrator pursuant to 18  U.S.C. 1350 Section 1350, as adopted pursuant to Section 906 of the  Sarbanes Oxley Act of 2002 |

 

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**SIGNATURES**

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the Registrant has duly caused this Report to be signedon its behalf by the undersigned, thereunto duly authorized.

 

 

Date: November 12, 2010

 
| By: Quest Turnaround Advisors, LLC                     |   |
|--------------------------------------------------------|--------|
| as Trust Administrator of the Adelphia Recovery  Trust |   |
| /s/ Jeffrey A. Brodsky                                 |   |
| Jeffrey A. Brodsky                                     |   |
| Member                                                 |   |

 

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